ETF is actually short for Exchange Traded Open-End Fund.

1, what is ETF?

ETF is actually the abbreviation of Exchange Traded Funds, because of the advantages of low starting point, transparent position, low cost, flexible trading, etc., favored by all kinds of investors. But compared to traditional open-ended funds, it also takes more time to learn. Don't think of ETFs as too sophisticated. I'll summarize some of the features of ETFs below to help you gain a deeper understanding:

First of all, ETFs, like all index funds, are packaged in a basket of stock combinations that the fund company has agreed to give you. But unlike traditional over-the-counter open-end index funds, ETFs allow investors to trade ETF shares throughout the day when the stock exchange is open, just like they do with stocks, in addition to being able to purchase or redeem shares.

Any of the trading methods previously used for stocks can be applied to ETFs, including switching positions at any time during the trading session, buying with financing, short selling with securities financing, and so on. Individual investors can think of an ETF as simply an index fund that can be traded continuously on the stock exchange during market hours.

Because of free trading in the market, the short-term mismatch between supply and demand may affect the ETF's "trading price", which deviates from the actual value of the securities in the tracking index. So another difference between ETFs and over-the-counter funds is that ETFs don't necessarily trade exactly at the latest net asset value, and may briefly trade at a discount or premium.

But the ETF's operating mechanism will correct the situation within a short period of time, suppressing the magnitude and duration of the discount or premium. This is one thing that makes ETFs more complex than over-the-counter open-end funds and can easily be overlooked by individual investors.

2. Overview of the ETF market

The first domestic ETF product was the SSE 50 ETF, which was established at the end of 2004 and listed and traded in February 2005.In the following fifteen years, the domestic ETF market has seen explosive growth. By the end of 2019, the total size of domestic ETFs exceeded 750 billion yuan and the number was 284, an increase of 33.7% from the previous year, maintaining a high growth rate. In contrast, the total size of ETFs in the U.S. market during the same period was $4.4 trillion and the number was 2,343. In comparison, China's ETF market still has a lot of room, both in terms of number and size.

Looking at the market pattern of domestic ETFs, a large number of fund companies have already laid out mainstream broad-based indices, such as 16 CSI 300 ETFs, 14 CSI 500s and 11 GEM indices, which tends to whiten the competition in the market. Therefore, more and more fund companies have started to lay out market segments, and in recent years, many ETFs of segmented industries and themes have been listed. under this trend, it is believed that in the next few years, the product layout of domestic ETFs will be more complete, and will be able to satisfy more diversified investor needs. Next, I will introduce the classification of ETFs.

3. ETF Variety Classification

I usually classify ETFs into four major categories: stocks, commodities, bonds and currencies. Before introducing these varieties, I'd like to share a little practical knowledge: the domestic ETFs, in addition to investing in China's stock market index-type ETFs, are the same as the A-share implementation of the T+1 trading system, while the rest of the bond-type ETFs, traded currency funds, commodity-type ETFs, and investment in overseas cross-border ETFs, which are all internationally recognized as "T+0" trading. " trading method.

The first category is equity ETFs: Equity ETFs, which now account for more than 70% of the ETF market, are also the most dominant ETF variety. On this basis we can further subdivide them into broad-based indices, themes and sectors, SmartBeta and so on.

Our most common ETFs are the SSE 50, CSI 300, CSI 500 and GEM indexes. By allocating to these ETFs, we can conveniently invest in major sectors. The time relationship, will no longer be in-depth discussion.

And industry ETFs, covering consumer, medical, financial, military, media and other traditional industries, and now another semiconductor, chip, 5G communications, new energy vehicles and other emerging niche industries, because relative to the mainstream broad-based index has a higher volatility, the industry logic is easy to be understood by investors, are very good tools to participate.

According to big data statistics, industry-based ETFs are the more favored varieties among domestic individual investors. In addition, ETFs with themes such as state-owned enterprise reform, value, low-wave, dividend and SmartBeta categories are also being recognized by more investors with mature ideas in recent years.

In addition to this, equity ETFs also include cross-border ETFs that invest in overseas markets. listed varieties cover mature markets such as Hong Kong, the U.S., Germany, Japan and so on. From a global asset allocation perspective, these are good tools for diversifying portfolio risk.

The second category is commodity ETFs: The most familiar one is the gold ETF, which has recently hit record highs. Since 2019, commodity ETFs have listed varieties such as nonferrous metals, soybean meal, and energy chemicals. At this stage, the available categories are still relatively limited, and we look forward to the early listing of silver, copper, sugar and more commodity futures ETFs that are already in the process of being declared.

The third category is bond ETFs: which are subdivided into treasury bonds, municipal bonds, local bonds, corporate bonds, credit bonds, convertible bond ETFs and other categories. As more and more people are moving towards asset allocation, bond ETFs, as a must-have option for low-risk funds, are expected to further capture the share of the original currency ETFs to meet more people's low-risk needs, with huge room for future development.

The fourth category is currency ETFs: Zero trading commissions, T+0 and other advantages make currency ETFs a good alternative to on-market idle funds. I think a lot of investors have been aware of this before.

The above is the full picture of the current domestic ETF market, with a very wide range of options, already a relatively rich investment toolbox. As a final reminder, since ETFs are traded varieties, individual investors should pay attention to liquidity before buying and selling, and try not to participate in less active varieties.